Palo Alto Weekly

News - August 9, 2013

Palo Alto weighs higher taxes to fund infrastructure

With passage of a bond measure uncertain, City Council committee considers other options

by Gennady Sheyner

Faced with a laundry list of infrastructure problems and lukewarm support for a bond measure to pay for the repairs, Palo Alto officials are weighing a menu of tax increases that they hope voters will approve in 2014.

The infrastructure list includes everything from buildings in need of fixes to new facilities the city would like to have: sidewalk repairs, improvements to the animal shelter, bike paths, renovated fire stations, new downtown garages and the most pressing need of them all — a new public-safety building to replace the cramped and seismically unsafe police headquarters at City Hall. Yet a recent survey commissioned by the city showed that a funding measure that would pay for a public-safety building would likely not get the needed two-thirds support from city voters.

On Tuesday, Aug. 6, the City Council's Infrastructure Committee shifted its focus to other options for funding more than $100 million worth of infrastructure improvements. Among the ideas was an increase to the city's hotel tax, also known as transient-occupancy tax. Palo Alto last raised its hotel tax in 2007, increasing it from 10 to 12 percent. Mayor Greg Scharff on Tuesday proposed raising it to 14 percent, which would place Palo Alto's rate above those of neighboring cities and on par with San Francisco's and Oakland's.

Even without the increase, the tax is expected to net the city $11.5 million in revenues this fiscal year.

As far as tax hikes go, the hotel tax is relatively palatable to residents. The survey showed 62 percent of respondents would support an increase in hotel tax to pay for infrastructure repairs (24 percent indicated "strong support"). The support for a real estate transfer tax (paid when property is bought and sold) was only 51 percent. Sales tax and utility-users tax scored at the bottom of the scale, with 38 percent and 29 percent.

Scharff predicted that increasing a hotel tax would be a "slam dunk." The council could then commit to using the funds from the tax to pay for a new police building.

"Hands down, that's the one that wins," Scharff said.

Another idea would be to ask voters to pass a bond measure, the same mechanism the city used in 2008 to pay for library renovations. The survey showed 64 percent of voters supporting a possible infrastructure bond, though numbers varied depending on the project. More than two-thirds of the voters voiced support for renovating two obsolete fire stations and making progress on street and sidewalk repairs. Yet poll results showed 52 percent of responders would support those items and only 44 percent would support paying for a new downtown garage, another project near the top of the council's wish list.

Opinions on how to resolve the infrastructure quandary ranged far and wide, and the meeting ended with no consensus on what type of measure, if any, should be put on the November 2014 ballot. Vice Mayor Nancy Shepherd urged proceeding expeditiously with a new police building, a project that has eluded the city for more than a decade. The city is now weighing a proposal from developer Jay Paul Co., which offered to construct a police building in exchange for the city's permission to build a 311,000-square-foot office complex at 395 Page Mill Road. Shepherd proposed sending the Jay Paul project to the voters in June for an advisory vote.

"I don't feel we have the shared energy or shared concern," Shepherd said. "I think this is one of the most important deliverables I have to produce as a council member. I don't want to kick it down to a future council."

Her colleagues on the committee — Scharff, Larry Klein and Marc Berman — agreed that a new police station and the fire stations should top the infrastructure list. But they had other ideas when it comes to funding.

Klein and Scharff agreed that the city should not include the Jay Paul proposal in its deliberations on the 2014 bond. They pointed to a list of other possible ways to fund needed work, including renting land by the Los Altos Treatment Plant, passing a business-license tax and using money from the city's development agreement with the Stanford University Medical Center. The agreement allots the city $22.1 million for infrastructure and housing and another $12.3 million for sustainability projects. The city also expects to get $2.4 million in annual revenues from new hotels, according to a staff report, which could be used to finance $33.6 million in capital improvements.

Given these options, committee members agreed that asking the voters to approve a general-obligation bond on a police building is an unnecessary risk.

"I don't see any point in going to a bond measure unless we absolutely have to," Klein said. "And I think our resources clearly allow us to move forward."

Berman was more open to a bond and argued that the city should save regular tax revenues for looming expenses such as escalating pension and health care costs. He advocated a bond for items that resonated with the voters, including sidewalk and street repairs.

"I think there is support in the community for funding some of the projects that we have identified," Berman said.

With no clear consensus, the committee agreed to revisit the discussion at its next meeting, on Sept. 5. At that time, staff will present an updated analysis and more information about funding options and the city's capital-improvement program.